Gold bulls were in full control this week as prices jumped past $1450 for the first time since 2013.
Market expectations over the Federal Reserve cutting interest rates for the first time in over 10 years, Dollar weakness and tensions boosted appetite for Gold this week. With central banks across the globe already cutting interest rates to boost their respective economies, Gold is set to glitter in this low-interest-rate environment.
Focusing on the technical picture, a solid weekly close above $1430 should inspire a move back towards $1450 and $1470, respectively.
Dollar humbled by IMF and Fed doves
It has been another rough and rocky trading week for the Dollar thanks to the International Monetary Fund (IMF) and dovish commentary by Fed officials.
Earlier in the week, the IMF said the US Dollar was overvalued by 6%-12% - ultimately forcing investors to re-evaluate the Dollar’s current valuation. On Thursday, Federal Reserve Bank of New York, President, John Williams, said that central banks must “take swift action when faced with adverse economic conditions” while Federal Reserve Vice Chairman, Richard Clarida, stated that policymakers “don’t need to wait until things get so bad” to have a dramatic series of rate cuts
Such dovish commentary from Fed official’s is reinforcing expectations of a US interest rate cut at the end of this month. The Dollar Index (DXY) remains under pressure on the daily charts with prices trading marginally below 97.00 as of writing. Repeated weakness below 97.00 could open a path lower towards 96.60.
Rocky path ahead for British Pound
The path ahead for the British Pound is filled with obstacles and more pain as concerns mount over the United Kingdom crashing out of the European Union without a Brexit deal.
In latest developments to the Brexit saga, Boris Johnson and Jeremy Hunt have both vowed to reject the Irish border backstop, even if a time limit is set. With the European Union already making it clear that the withdrawal agreement is not open for renegotiations, this latest twist certainly increases the risk of a no-deal Brexit on October 31st.
Sterling remains one of the sick men of the G10 space thanks to Brexit fears, and this continues to be reflected the currency’s overall performance since the start of July. As the clock ticks closer to the EU exit date, the Pound may no longer respond to economic data but only political developments and Brexit newslows.
Given the chronic levels of uncertainty revolving around UK politics and Brexit, this does not bode well for the British Pound which has already weakened to a 27-month low against the Dollar, below 1.24 this week.
Looking at the technical picture, the GBPUSD remains in a downtrend on the daily charts. A move back below 1.2500 should re-open a path towards 1.2420 and 1.2350.